DRAFT
ASB Update as of September 15, 2004

Since my last report, the Auditing Standards Board (ASB) and the Audit Issues Task Force (AITF) have met once. The ASB agenda covered four topics: risk assessment, the use of specialists, the audit report, and audit documentation while the AITF focused on possible revisions to reporting on internal control for nonissuers and the anti-fraud task force. The ASB has undertaken an ambitious agenda.

I will address the ASB's work regarding the following topics:

• Risk assessment
• Internal control
• The use of specialists
• International Auditing Standards Subcommittee

Risk Assessment Task Force

Prior to the formation of the PCAOB, the ASB was working on a set of exposure drafts addressing risk assessment in conjunction with the International Auditing and Assurance Standards Board (IAASB). In October 2003, the IAASB approved three international standards on auditing (ISAs) related to risk assessment. The ASB's risk assessment task force currently is revising the previously issued risk assessment exposure drafts and plans on issuing final standards in 2005.

Faculty involved in teaching and research in auditing should look carefully at these exposure drafts. The proposals lay out the auditor's risk assessment process and substantially revise the framework for assertions and evidence. For example, the proposed standard on evidence creates three categories of assertions, one each for transactions, account balances, and disclosure.

Internal Control Task Force

The internal control task force has been working on implementation issues related to reporting on internal control over financial reporting. The task force will be addressing revisions to SAS No. 60 — Communications of Internal Control-Related Matters and AT 501 — Reporting on Internal Control. With the passage of PCAOB Auditing Standard No. 2, both of these documents require revision.

Specialist Task Force

Auditors' use of specialists has increased and evolved since the issuance of SAS No. 73, primarily as a result of the more complex environments and transactions that exist today. During the development of recently issued auditing standards, task forces have expressed concerns regarding the consistency and sufficiency of auditing guidance on the use of specialists. Some of the concerns stem from the various roles of a specialist (member of the engagement team, consultant to the auditor, independent consultant to the client, or employee of the client) and the nature and extent of audit work necessary when the auditor intends to use the work of a specialist. Other concerns relate to the use of specialists in areas that may be very complex, such as information technology, fair value measurements, and valuations in highly specialized industries.

The specialist task force is preparing two exposure drafts that will be presented to the ASB at its next meeting. The two exposure drafts are entitled:

• Using an Outside Specialist to Assist in the Audit.
• Using the Work of Management's Nonemployee Specialist.

International Auditing Standards Subcommittee

The objective of the International Auditing Standards Subcommittee (IASS) is to support the development of international auditing standards. Subcommittee activities include providing technical advice and support to the AICPA representative and technical advisors to the International Auditing and Assurance Standards Board, commenting on exposure drafts of international assurance standards, participating in and identifying U.S. volunteer participants for international standard-setting projects, identifying opportunities for establishing joint standards with other standard setters, identifying international issues that affect auditing and attestation standards and practices, and assisting the ASB and other AICPA committees in developing and implementing AICPA international strategies.

The IASS meets one to two weeks before the IAASB meetings. The Subcommittee discusses the items on the IAASB's agenda and provides guidance to the U. S. representative (John Fogarty). The IASS has held two 1½ day meetings since my last report. Generally, a representative of IOSCO and the PCAOB attend IASS meetings.

Items currently on the IAASB's agenda that may be of interest to auditing academics include materiality, accounting estimates, audit reporting, and audit documentation. IAASB agenda materials are downloadable at their web site http://www.ifac.org/IAASB/.

Back to Contents Page